Is 5G Ericsson’s Next Revenue Growth Driver?

Can Ericsson Return to Revenue Growth?

Revenue expected to fall 7.3% YoY in 2017

Analysts expect Ericsson’s (ERIC) revenue to fall 7.3% YoY (year-over-year) in fiscal 2017 to $24.1 billion from $26.1 billion in fiscal 2016. They expect revenue to fall 3.5% YoY more to $23.3 billion in fiscal 2018. Revenue is estimated to fall 6.1% YoY to $5.6 billion in 3Q17, and it’s expected to fall 9.2% YoY to $6.9 billion in 4Q17.

In the previous part of this series, we saw that Ericsson’s sales in Europe fell 11.0% YoY in 2Q17. Sales in the Middle East and Africa fell 17.0%, and revenue from North America and Northeast Asia fell 7.0% and 3.0%, respectively, in 2Q17.

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In fiscal 2016, Ericsson’s revenue fell 11.0% YoY from $29.3 billion in fiscal 2015. In comparison, its EPS (earnings per share) fell 88.0% YoY to $0.06, and net income fell 86.0% YoY to $220.0 million in fiscal 2016.

Why Ericsson’s revenue has fallen

Ericsson has been facing a difficult macro environment as 4G (fourth-generation) installations have been completed in most developed economies. In addition, sales from emerging markets such as China have declined in the last two quarters. The transition to 5G (fifth generation) is unlikely to take place before 2019.

Rising competition from China’s (FXI) Huawei has meant a drop in market share for Ericsson. Huawei is now the largest telecom infrastructure company, and revenue from its carrier segment rose more than 23.0% YoY to $42.0 billion last year. That’s in contrast to a fall in revenue for Ericsson and Nokia (NOK). Huawei’s telecom revenue is expected to rise 30.0% YoY in 2017 as well.

These factors have negatively impacted Ericsson’s revenue and profit margins over the last 15 months.